StoneCastle Investment Management 2nd Quarter Update€¦ · Real Estate Technology Telecom...

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REDWOOD ASSET MANAGEMENT INC. 1

StoneCastle Investment Management2nd Quarter Update

Overview

• Bear Market Indicators

• Economy

• Markets

• Sectors

• Opportunity Ahead

StoneCastle Investment Management

• Redwood Income Growth Class – Yielding Equities• Redwood Equity Growth Class – Growth Equities

• StoneCastle Investment Management is a quantitative-oriented investment firm focused on the management of Canadian equities.

• StoneCastle is led by Bruce Campbell, B. Comm., CFA, CAIA a financial professional with over 22 years experience in discretionary investment management

• StoneCastle manages two mutual funds for Redwood using their earnings growth/relative strength focused quantitative approach:

Fund Performance as at June 5th, 2015

Total Return % (05/06/2014) 1-Month 3-Month YTD 1-Year 3-Year 5-Year

Redwood Equity Growth Class 2.16 8.04 10.05 14.63 23.39 12.85

Category (Canadian Small/Mid Cap Equity) 0.73 3.25 6.00 -0.36 14.55 11.48

+/- Category (Canadian Small/Mid Cap Equity) 1.43 4.79 4.05 15.00 8.85 1.37

Rank in Category / # of Funds 21/200 3/- 19/193 5/187 16/147 42/120

Redwood Equity Growth Class

Total Return % (05/06/2014) 1-Month 3-Month YTD 1-Year 3-Year

Redwood Income Growth Class -2.10 0.62 3.70 3.40 11.10

Category (Canadian Dividend & Income Equity) -1.32 -1.00 1.28 1.44 11.95

+/- Category (Canadian Dividend & Income Equity) -0.78 1.62 2.42 1.96 -0.86

Rank in Category / # of Funds 72/478 8/- 14/465 33/445 66/312

Redwood Income Growth Class

Source: Morningstar Research

16-18 Year Cycles

Valuation Low Jeff Saut – Raymond James

Source: Jeff Saut, Raymond James

Structural Fair Market Vs. Bull Market

Source: Dorsey Wright & Associates

10 Year CAGR

10 Year CAGR is 4.4% today. Average since 1800=9.1% and tops our in mid teens

Bear Market Indicators

LEI and 18 Month Moving Average

Source: Bloomberg

Energy80% Rise in 12 Months

80% Increase = $81.52

Financial Conditions Index

Source: Bloomberg

Unemployment and 12 Month Moving Average

Source: Bloomberg

ISM Manufacturing

Source: Bespoke

Citi Economic Surprise Index

Source: Bloomberg

Consumer Comfort Index

Source: Bloomberg

Valuation

Equities - Favored Asset Class

Source: Dorsey Wright

What’s the Bond Market Telling Us?

NYSE Monthly Momentum

S&P/TSX Monthly Momentum

Weekly MACD Positive

Pros Have Given Up Control

Source: Whiteside Research

Pros About to Give Up Control

S&P/TSX SectorsNegative

S&P/TSX SectorsPositive

S&P/TSX Sectors

Source: Stockcharts, RRG

TSX Monthly ReturnsMay and June

Source: Bloomberg

S&P 500 Monthly ReturnsMay and June

Source: Bloomberg

Sector Allocation Redwood Equity Growth Fund

Communications Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Materials

Technology

SECTOR WEIGHTINGS ‐ Q1

Communications Consumer Discretiona

Consumer Staples

Energy

FinancialsHealth Care

Industrials

Materials

Technology

SECTOR WEIGHTINGS ‐ Q2

Sector Allocation Redwood Income Growth Fund

Consumer Discretionary

Energy

Financials

Health Care

Industrials

Real Estate

Technology

Telecom

Transportation

Utilities

SECTOR WEIGHTINGS – Q1

Capital Goods

Consumer Disc

Consumer Staples

Energy

FinancialsHealth Care

Industrials

Real Estate

Technology

Transportation

Utilities

SECTOR WEIGHTINGS – Q2

Fund Attributes

Attribute S&P TSX Redwood Income Growth

Beta 1.00 0.70

Expected Yield 2.90% 5.44%

Quarterly EPS Growth ‐4.80% ‐2.50%

NY EPS Growth 25.00% 19.40%

Attribute S&P TSX Redwood Equity Growth

ROE 10.50 % 11.10%

Quarterly EPS Growth ‐4.80% 4.20%

Quarterly Earnings Surprise 1.60% 3.50%

NY ESP Growth 19.40% 43.00%

Statistics – Volatility MetricsRedwood Equity Growth Class

3‐Year Trailing Redwood Equity Growth

S&P/TSX Completion

Canadian Small/Mid Cap Equity

Standard Deviation 10.74 8.31 9.77

Return 23.48 10.21 14.18

Sharpe Ratio 1.94 1.10 1.41

R‐Squared 36.90 100 80.36

Alpha 13.69 ‐ 0.50

Beta 0.79 ‐ 1.00Upside & Downside Capture 1‐Year 3‐Year

Redwood Equity Growth 75.83‐12.81

104.61‐49.70

Canadian Small/Mid Cap Equity 78.22 72.49

88.6050.66

Source: Morningstar. Data as of May 31, 2015

Statistics – Volatility MetricsRedwood Income Growth Class

3‐Year Trailing Redwood Income Growth

S&P/TSX Total Return

Canadian Dividend & Income Equity

Standard Deviation 7.10 7.28 6.61

Return 10.64 12.58 11.68

Sharpe Ratio 1.33 1.54 1.63

R‐Squared 29.52 100 63.66

Alpha 3.50 ‐ 3.19

Beta 0.53 ‐ 0.60

Upside & Downside Capture 1‐Year 3‐Year

Redwood Income Growth 67.1563.87

63.7820.38

Canadian Dividend & Income Equity 73.0182.64

79.6555.96

Source: Morningstar. Data as of May 31, 2015

The Playbook

• Indicators are in Neutral

• Seasonally weaker time of the year

• Bear market warning signs are not present

• Watch indicators for changes

Back to OffenseSeptember 2010 to February 2011

Source: GlobeFund

Back to OffenseSeptember 2012 to January 2014

Source: GlobeFund

Questions?

Contact Info

Bruce Campbell, CFA, CAIAbruce@stonecastlefunds.ca

Jordan Youl, CIMjordan@stonecastlefunds.ca

205‐1708 Dolphin AveKelowna, BCV1Y 9S4

Phone: 250‐448‐6475Toll Free: 866‐780‐6475

StoneCastle Investment Management 2nd Quarter Update€¦ · Real Estate Technology Telecom...

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